Factors Affecting Elasticity of Supply Assignment Help

Factors Affecting Elasticity of Supply

Some of the factors affecting elasticity of supply are:

Nature of the Commodity: Elasticity of supply also depends on the nature of good i.e. whether the good is perishable or durable. In case of perishable goods, since storing them for a long time is not possible, there is always an urgency to sell. So whatever be the price, the supplier will like to sell the good and therefore supply will be inelastic. This is the case with green vegetables, fruit, fish etc. but if the good is durable, i.e. it can be kept in storage for a long time, the seller will be in no hurry to sell. He will wait for the price to go up to the expected level and only then sell his good. In this case the supply will be elastic. Such is the case with wheat, rice, pulses, cement, cement, steel, etc.

The Ease with which a producer can Shift Production: the ease with which producers can shift from production of other goods to the production of that good whose price has risen. The easier it is to shift, the more elastic will be the supply. If such shifting is difficult or not possible, supply will be less elastic.

The Time with Allowed for Adjustment: supply will be elastic if time allowed for adjustment is longer. Thus when petroleum prices increase, more supply may not be easily forthcoming as oil wells may be already working to full capacity. But if price remains high for a long time, new oil fields may be discovered, new wells drilled and new pipelines laid for increased supply. Thus, supply becomes more elastic over a longer period.

Response Cost of Production to Changes in the Level of Output: if cost of production rises sharply with increase in production, then even a large increase in price of a good will not result in much increase in its supply and hence supply would remain inelastic. But if increased production is accompanied with small changes in cost, then response of supply to price increase will be large and thus supply will be elastic.